A new report reveals that the majority of cryptocurrency and blockchain projects are centralized.
Majority of Cryptocurrencies Can Be Classified as Centralized, Securities
Cryptocurrency research firm CryptoCompare released its annual Cryptoasset Taxonomy Report, and their findings reveal that only 16% of cryptocurrencies are fully decentralized. The remaining cryptocurrencies reviewed are either centralized, or only semi-decentralized, suggesting that the development team behind the projects have some leverage to influence the protocol underlying the asset.
While the original cryptocurrency that started it all, Bitcoin, was designed by the mysterious Satoshi Nakamoto to focus on decentralization and removing the control governments have over existing fiat currencies, the industry he or she created is increasingly trending toward centralization.
The report outlines how the trend is largely driven by the rapid growth of new utility tokens running on private servers. Only 9% of all utility tokens were found to be sufficiently decentralized. Cryptocurrencies that function primarily as a means of payment, such as Bitcoin, Litecoin, Stellar, and others are among the most decentralized types of crypto assets.
Financial assets such as those born from initial coin offerings (ICOs) are only 7% decentralized, and are more often than not classified as securities, according to the report. CryptoCompare classified the assets using guidelines set forth by the Swiss Financial Market Supervisory Authority (FINMA).
But What About Bitcoin, Ethereum, and XRP?
Which crypto assets are properly decentralized or what assets can be deemed as securities are a hot button issue for cryptocurrency investors.
Bitcoin was recently ruled a commodity by a U.S. district court judge, and Jay Clayton, chair of the U.S. Securities and Exchange Commission (SEC), has gone on record stating that Ethereum is no longer a security, even though it may have started its existence as one.
XRP, the native crypto token of the Ripple protocol is often used as an example of a crypto asset that claims to be decentralized, but is arguably not. Investors fear that Ripple Labs’ ownership of the bulk of the XRP supply puts the token at risk for being deemed a security.
Ripple executives have repeatedly refuted claims that XRP is centralized, and often point to China’s dominance over Bitcoin mining as a way the number one cryptocurrency by market cap has become increasingly centralized. Recent reports conclude that as much as 74 percent of Bitcoin’s hashpower is derived from Chinese mining pools like Bitmain. However, given the fact that the mining pools controlling much of Bitcoin’s hashpower are separate entities, Bitcoin remains sufficiently decentralized.
Bitcoin was created by Satoshi Nakamoto in 2008 in the wake of the global financial crisis. Nakamoto designed Bitcoin to be decentralized in an attempt to remove the control over the world’s finance that banks and governments have long enjoyed.
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